信用卡是怎么工作的（How credit card payment works）

Working for the payment industry, I am often asked how credit card payment works. Although a credit card is involved with many aspects, such as card making, card security and purchase processing, understanding the five key players in the business would provide a clear idea of the credit card business.

1. The consumer: a credit card owner who’s responsible for any payments of his credit card.

2. The merchant: a shop or service provider who accepts the customer’s credit card payment. For every credit card transaction they accept, they must pay a fee called the “merchant discount”.

3. The issuer: a bank that issues credit cards to consumers.

4. The acquirer: a bank that serves the merchant. This includes crediting the merchant's account for the value charged to a credit card less all the fees.

5. The payment network: a credit card service provider that processes card payments and links the acquirer and the issuer involving this payment. Visa and MasterCard are the largest payment networks in the world. Other worldwide payment networks are American Express, Discover and JCB.

The issuer, acquirer, and payment network support the credit card payment at the background, unseen by consumers.

This “five-player” setup allows the acquirer and the issuer only to deal with the payment network instead of having direct contact with each other during a transaction of credit card payment. In this way, a card issued by a bank in UK can be used at a shop in US without requiring the banks (the acquirer and the issuer) to have a direct contact. The consumer deals with the merchant, the merchant with the acquirer, and the acquirer with the payment network. At this point, the merchant gets paid the price less the “merchant discount” and the consumer served. The payment network then continues the process to contact the issuer who will send the credit card bill to the consumer.

The “merchant discount” is shared between the acquirer, the issuer and the network. Typically in US, the average "merchant discount" is about 2.0%. Of this, 1.7% goes to the issuer (known as the “interchange fee”), 0.15 ~ 0.17% to the payment network (known as the “processing fee”), and the rest to the acquirer. It can be 2.5% or 3% in some European countries. In addition to the “merchant discount”, depending on the payment scheme, some other fees may apply, such as a fixed service charge. This explains why some shops are reluctant to accept credit card payments.

Many “Prime” or “Superprime” card issuers use the majority of their interchange revenue to fund their loyalty programs, such as “Amazon points”, “Nectar points” and “cash back”. It is usually worth 0.5% and hence the issuer’s profit from card purchasing is relatively small.

However, they recover the loss by charging high interest rates of card lending and other fees, such as the late payment fee and call charges. So, to take advantage of credit cards and save money, it’s better to pay the credit card bill in full on time.